Question 1.
A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment:
Gasoline Availability
| Investment | Shortage | Stable Supply | Surplus |
| Motel | -$8,000 | $15,000 | $20,000 |
| Restaurant | 2,000 | 8,000 | 6,000 |
| Theater | 6,000 | 6,000 | 5,000 |
Determine the best investment, using the following decision criteria.
- Maximax
- Maximin
- Minimax regret
- Hurwicz (a = .4)
- Equal likelihood
Question 2.
The Steak and Chop Butcher Shop purchases steak from a local meatpacking house. The meat is purchased on Monday at $2.00 per pound, and the shop sells the steak for $3.00 per pound. Any steak left over at the end of the week is sold to a local zoo for $.50 per pound. The possible demands for steak and the probability of each are shown in the following table:
| Demand (Ib) | Probability |
| 20 | .10 |
| 21 | .20 |
| 22 | .30 |
| 23 | .30 |
| 24 | .10 |
| 1.00 |
The shop must decide how much steak to order in a week. Construct a payoff table for this decision situation and determine the amount of steak that should be ordered, using expected value.